Identification
The case of Pfizer is one of the most interesting studies in the pharmaceutical business. One major reason is that it almost fell into near-death situation, a paradox considering that its mission is treatment of diseases. What happened to this once the biggest global pharmaceutical firm? Who or what was responsible for this fall?
Pfizer has been a leading drug company, involved in manufacturing of new medicines to treat popular human diseases, like cardiovascular and metabolism diseases.
Half of its total revenues were attributed to prescription drugs. Pfizer’s mission and goals were to provide cutting edge research and development in the different operating segments, from product development to the patient’s therapeutic stage, which encompass the product’s life cycle. Pfizer also became actively involved in biotechnology with the acquisition of some biotechnology firms.
It has been said that the life-blood of a pharmaceutical firm is in research and development (R&D). Although this has to be corrected, since R&D is sometimes the “killer” of a pharmaceutical firm, Pfizer became a leader in the industry because of its R&D centers in many parts of the world. These centers created blockbuster drugs and produced profits, but just as many also caused losses for the firm.
The fact is Pfizer had many problems – the usual and unusual problems which pharmaceuticals face in the course of inventing new medicines for new diseases, recovering the costs for inventing and pre-testing those medicines, maintaining the hold as the leader of top pharmaceutical firms, among others.
Pfizer lost profits by inventing one drug after another; the main causes were the usual ones – side effects, human safety concerns, etc. The causes were internal and external ones – a scenario all managers abhor and would love to close shop.
Analysis and evaluation
From its financial report for the year then ended 2012 (2012 Financial Report, 2012), Pfizer had total revenues of $58.986 billion. The medicines that were originally manufactured in Pfizer’s manufacturing plants, ranging from the Lyrica and Viagra to the Primarin family, produced those revenues.
Some of the products lost their momentum along the way, creating a negative impact costing millions of dollars in research and development and in the pre-clinical testing and actual testing processes. A recapitulation of the expenses and income generated from the invented/manufactured medicines is shown in Appendix 1. The calculations in this attachment were rounded off to provide simplicity in the figures.
The overall performance showed that revenues went down in 2012. Appendix 1 shows that Pfizer had an operating profit margin of $0.67 billion, which is short of saying that this is what (or how) the company got from its invested money without charges. The amount is rather low if we have to consider the resources that the company had spent and exerted.
The explanation in the financial report stated that the losses were due to the negative impact made by its major product, the Lipitor, amounting to $7.7 billion, equal to 12% of the total revenues for the year (2012 Financial Report, 2012, p. 15).
The financial report made mention of the negative impact of the manufactured drugs, and the decrease of sales of the drugs (2012 Financial Report, 2012, p. 2).
Kindler announced the dismissal of 10,000 employees, mostly from European branches and R&D centers. Those who were retained came from the US branches. This is because the United States and North America have largely contributed to the annual revenues. US Per capita spending on pharmaceutical products is 728, which is larger than the European countries even those from France and Germany.
SWOT Analysis
Strength
Pfizer’s assets have been earned and built through the years: it has adequate financial resources to counter the tides of weak sales or any downturn. Its strength lies in its standing in the industry – it is a recognized leader. Its commitment to R&D is also well recognized as it spends millions to invent and manufacture medicines for emerging diseases.
The period of Kindler’s entry in the company was described as slow growth – the company was in the verge of a sharp decline from all its sales of the various manufactured drugs, to include the Lipitor. But Kindler’s entry was seen as strength because of the changes he introduced which produced positive results.
Weakness
The drug Lipitor was a problem; a paradox because they used to call it a blockbuster. At first, Lipitor contributed to the firm’s sales, reaching up to US$13 billion, equal to 40% of Pfizer’s total profit. The firm developed another medicine called “Torcetrapib”, believed to be the successor of Lipitor, but the drug also created a problem in the human safety aspect.
Opportunity
From the case analysis and perusal of the 2012 Financial Statement, we can conclude that Pfizer is capitalizing on the manufactured drugs for the various diseases. These drugs are the lifeblood of the company. While some drugs made some setbacks, most of them are selling good and have provided profits. The expired patents still earned profits for Pfizer considering that it has rights to the sale of generic drugs.
Threats
As it has always been said, there’s strong competition in the pharmaceutical industry. Firms compete to introduce new drugs and manufacture patented drugs and generic drugs. Pfizer is strongly competing with GSK, Sanofi-aventis, Novartis, J&J, which are giants in their own right. Before a drug is introduced in the market, firms already compete to manufacture and own the patent for the still undeveloped drug.
Discussion of alternatives
The inside and outside factors provided a negative environment for Pfizer. There were many changes that Pfizer had to deal with; one concerned price setting. For example in 2005, the German government reduced the prices for all types of drugs. This paved the way to reimbursing the medical expenses of those who took Lipitor. The drug’s price also had to be reduced. The price reduction and the reimbursement produced a negative impact on Pfizer.
Price continued to pressure in other parts of Europe, particularly in the United Kingdom whose government issued the Pharmaceutical Price Regulation Scheme (PPRC) which set profit ceilings on all kinds of drugs. It created a unified reaction from the different pharmaceutical firms, while others considered it ‘extortion’. Pfizer was very much affected by the price scheme.
The invention of drugs, to include research and development, pre-clinical testing and testing, and manufacturing, takes about ten to fifteen years. When it is introduced in the market as a safe drug, a considerable amount of time, money, and resources of the company have already been spent.
When the drug has to be withdrawn from the market because of safety issues, the investing firm will already have lost millions of dollars. But this is not to say that it losses every time it manufactures medicines. Return of investment also provides millions, if not billions, of dollars.
Pfizer introduced innovations to counter the negative image and also to minimize unnecessary costs and increase profits. The alternatives were said to be revolutionary because they were introduced by a new brand of management, that of Kindler. But the innovations proved to be effective, even if it cost firing thousands of jobs.
Regarding its products, it appears that Pfizer will continue to earn profits from the manufacture of medicines. This is its prime source of revenues and will continue to be so in the future.
Recommendations/Implementability
Pfizer had to continue this strategy of convincing doctors to prescribe branded medicines to their patients because this is where most of their profits for drugs come. Moreover, Pfizer has been promoting their drugs through advertisements and the Internet. This year, Pfizer promoted vaccination in Ireland. Although it was a marketing strategy, it was also part of the firm’s corporate social responsibility. Health care for children is one of Pfizer’s primary goals.
Kindler’s goals have become Pfizer’s mission – health care for the different segments the firm has targeted. Research and development has been very much improved ever since the company has streamlined, modified the corporate structure and introduced changes and innovations, particularly in the R&D centers all throughout the world.
By continuing the changes in the area of R&D and the focus on the five segments, Pfizer will continue to recover the losses and regain the leadership in the pharmaceutical industry. Competition continues in this industry, but focusing on servicing and providing health through the introduction of new medicines, this firm will continue to recover and maintain the lead. Pfizer’s drugs have helped the ageing population and the fight against cancer and AIDS which formerly had no cure.
However, by continuing on their cutting-edge method in R&D and the operating costs in the millions and dollars, it may affect the firm’s goal of increasing profits. The goal of service to humanity has to continue but it may affect profits.
Kindler’s aim was to minimize losses in the R&D areas by conducting collaborative efforts with other companies. In short, Pfizer had to focus on transparency by opening to the public and acquiring more acquisitions. Kindler motivated the new sales force to boost sales. But all these efforts tended not to help Pfizer. When Kindler announced the dismissal of thousands of employees, the stock market negatively responded with a sharp fall.
References
2012 Financial report. (2012). Retrieved from https://www.pfizer.com/sites/default/files/annualreport/2012/financial/financial2012.pdf
Appendix 1
Goods sold = $12 billion (Lyrica, Celebrex, Viagra, and others)
6 billion (Norvasac and the Primarin family)
Total Sales = $18 billion (for the various medicines manufactured)
Cost of goods sold (expenses) = $11.3 billion
Gross profit margin = Sales – Cost of goods sold
Sales
= $18 billion – $11.3 billion
$18 billion
= $0.372 billion (margin provided to cover operating expenses)
Operating profit margin = 12.08 billion
18billion
= 0.67 billion
Net profit margin = Profits after taxes
Sales
= 12.08 – 7.64
18
Net profit margin = $0.25 billion
Taxes
Taxes on income = $2.56 billion
Discontinued ops. = 5.08 billion
Total taxes = $7.64 billion
Return on total assets = Profits after taxes
total assets
= 4.4 billion
58.986 billion
= $0.074 billion